There are certain costs that all employers face, such as Employers National Insurance – these are retained by your umbrella company and paid over to HMRC as part of PAYE legislation.
Contractors generally earn more than salaried employees doing the same kinds of work and one of the reasons for this is that employing someone comes with costs beyond just the individual’s salary. In order to cover these statutory costs, the umbrella company will usually retain an amount from your ‘contract rate’. The contract rate charged to the end hirer is generally inflated over and above the PAYE or agency rate to fully cover the umbrella company Employers National Insurance and Apprenticeship levy costs.